DP10977 Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field

Author(s): Mario Lackner, Rudi Stracke, Uwe Sunde, Rudolf Winter-Ebmer
Publication Date: December 2015
Keyword(s): forward-looking behavior, heterogeneity, multi-stage contest, promotion tournament
JEL(s): D84, D90, J33, M51
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10977

This paper investigates empirically whether decision makers are forward looking in dynamic strategic interactions. In particular, we test whether decision makers in multi-stage tournaments take heterogeneity induced changes of continuation values and the ability of their immediate opponent into account when choosing effort. Using data from professional and semi-professional basketball tournaments, we find that effort is negatively affected by the ability of the current opponent, consistent with the theoretical prediction and previous evidence. More importantly, the results indicate that the expected relative strength in future interactions does affect behavior in earlier stages, which provides support for the `standard' view that decision makers are forward looking in dynamic strategic interactions.